THE IMPACT OF INVENTORY MANAGEMENT ON THE PROFITABILITY OF A MANUFACTURING FIRMS (A STUDY OF CHAMPION BREWERIES PLC, UYO)

THE IMPACT OF INVENTORY MANAGEMENT ON THE PROFITABILITY OF A MANUFACTURING FIRMS (A STUDY OF CHAMPION BREWERIES PLC, UYO)

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ABSTRACT

Inventory management has posed a great concern to manufacturing firms. This will be attributed to the very nature of inventory as a major constitute of current assets. Thus, the importance of inventory management cannot be over emphasized since it has been established to play a big role in the continual existence of any manufacturing outpit. The place which inventory occupies in the production processes of manufacturing firms (companies) has prompted the study of its impact on the profitability of such companies. Sales and purchases are the basic trading activities that give rise to profit. Movement of inventory is an indication of the level of activities in a firm. Manufacturing business are flexible and dynamic and the business of Champion Breweries Plc, Uyo, just like that of any other company in manufacturing business should be changing with time. This research examines the impact of inventory management on the profitability of manufacturing firms. To carry out this research, the researcher resorted to the use of questionnaire, oral interview as the major instrument for data collection and chi-square for testing of formulated hypothesis as the statistical tool. After careful analysis of the data, the following were revealed: Proper inventory management has significant impact on the profitability of manufacturing firms, proper authorization of inventory quantity removed from the store for production is maintained; the staff of the company should be motivated towards adequate inventory management through training and seminar; productivity levels of such companies are enhance by proper inventory management. The study concluded with some recommendations that:

a)       Staff should be motivated towards profit maximization which is the         sole aim of every business enterprise. This should be through        appreciation of individual differences in both quality output among      staff of the company.

b)      In line with staff competition among many manufacturers in Champion Breweries Plc, Uyo, adequate attention should be given for        effective and efficient customer services to prevent them from         running to other sources          of supply.

c)       All efforts of Champion Breweries Plc, Uyo should be planned       towards making adequate harness of human resources elements in a      productive channel through staff training bearing in mind that success          or failure of          any organization depends on its work force.

d)      In the final analysis, the outcome of the research proved that proper        inventory management has impact on the profitability of    manufacturing firms.   

CHAPTER ONE

INTRODUCTION

1.1     BACKGROUND OF THE STUDY

The primary objective of most business organization includes and maximization of profits survival, growth and fulfillment of social responsibilities. The margin of profits help companies as well as public entities to take advantage of business opportunities, embark on research and innovations discharge its social responsibilities and in the long run, growth and survival will be achieved by them. To this end, it becomes necessary to make positive attempt towards profit maximization and minimization of operating costs of the business. One area of this cost that needs attention in any manufacturing company such as Champion Breweries Plc is the investment in inventories.

          According to Pandey (2008), inventory constitutes the most significant part of current assets a larger majority of Nigerian manufacturing industries. The investment in investment especially manufacturing inventories represent between 10% to 35% of the total assets of the business. Inventories are classified in the balance sheet under current assets as stock because of the fact that it can be turned into cash in a short period of time. It is because of its great impact on the profitability of manufacturing firms that necessitated an in depth study of the topic. This is so because according to Lipsey (1979), inventories are inevitable part of the productive process and require an investment of the company’s money since the company has paid for them but not yet sold.

          Manufacturing firms need inventories to produce optimal level and also make their products available to the market when needed, and hence they would expect some returns from their capital investment. Invariably, lack of inventories result to non- production or production below capacity. In such a situation, the profitability of the company will be drained especially where there is a situation of shut down. Excessive inventories connote situation where the company has more inventory than needed. This situation results to freeing the company’s capital in form of holding cost, storage cost etc.

          The impact of inventory management on the profitability of manufacturing firms is imperative for study. Profit making has been the most motivating force of most companies especially Champion Breweries Plc. For a company to make profit, adequate control of its cost should be high. Inventories must be both physically and financially controlled to ensure the companies ability to operate efficiently and profitably.

1.2     STATEMENT OF THE PROBLEM          

          The contemporary society is characterized by complex and dynamic environment whereby business enterprises were found springing up randomly. The economy in effect is faced with numerous problems that require urgent attention either by corporate entities and government. Management of inventory in manufacturing companies is a function of observation of prudent inventory accounting techniques which aims at not only helping the sustenance of manufacturing industries of setting it upon the path of growth but also improve industry as a group concern. Thus, the issue of long term profitability is maintained. Indeed, one of the problems that normally faced by manufacturing firms is how to maintain and value their inventories. Characteristically, those companies often lack knowledge of the right valuation method and optimum level of maintaining their stock.

          The problem associated with inventory management is that of maintaining an optimum level of inventory. To do this, efforts will be made by the management of eliminating price distortions and high expenditure on frequent re-order, finding the true value of the order quantity, over labour sector inefficiency.

1.3     OBJECTIVES OF THE STUDY  

The objectives of the study is to find out the following:

i)       To find how a good and proper inventory management and control can be of benefit to the growth of manufacturing firms in Champion Breweries Plc, Uyo.

ii)      To determine inventory management has any influence on the volume of profit made by management firms

iii)     To determine how proper management could enhance the productivity level of the company

iv)     To determine and maintain the optimum level of inventory management in Champion Breweries Plc, Uyo. 

1.4     SCOPE OF THE STUDY

This study is limited to Champion Breweries Plc, and upon the research topic, which is centered on the impact of inventory management on the profitability of  a manufacturing firms. The researcher is simply interest in fact of inventory intent of method keeping inventory control on the profitability of Champion Breweries Plc, Uyo.

1.5     SIGNIFICANCE OF THE STUDY

          The ultimate goal of any company or organization is to maximize profit. The goal can be achieve in the manufacturing firm (company) like Champion Breweries Plc, Uyo through inventory management on the profitability of a company firms.

          The study is necessary because it would enable the employer and employee of Champion Breweries Plc, Uyo to improve ethical behaviour and code of conduct in the management of the company.

          It would be of immense benefit to investors who want to invest in the company and the shareholders of the company to earn more profit. It will also serve as a reference source to researcher (students) who might want to further studies in the similar topic.

1.6     RESEARCH QUESTIONS

          The following are the research questions generated for the study:

1.       Does proper inventory management bring about increase in the profitability of manufacturing firms?

2.       Could productivity levels of management companies be enhance through proper inventory management?

3.       What are the problems associated with inventory management on profitability in Champion Breweries Plc, Uyo?

4.       Can staff be motivated toward adequate inventory control measures in Champion Breweries Plc, Uyo?

5.       How often is stock taking of inventory done in your company?

1.7     STATEMENT OF HYPOTHESIS

          The following are hypothesis formulated to guide this study:

Ho:  There is no significant relationship between inventory management and increase in profitability of a manufacturing firm.

H1:    There is a significant relationship between inventory management and increase in profitability of a manufacturing firm.


HYPOTHESIS 2

Ho: There is no significant relationship between proper inventory management and productivity levels of manufacturing companies.

H2:    There is a significant relationship between proper inventory management and productivity levels of manufacturing companies.

HYPOTHESIS 3

Ho:   There is no significant relationship between staff motivation through training and seminars in adequate inventory management.

H3:    There is a significant relationship between staff motivation through training and seminars in adequate inventory management.

1.8            LIMITATION OF THE STUDY

The limitation of this study was inability of management divulge certain information which they consider sensitive and fear of publication which might be detrimental to their operation.

          Also, the outright inability of some respondents to complete and return the questionnaire to the researcher is one of the limitations of the study.

          Another limitation to the study was traffic congestion for the researcher to meet them in their offices and for possible return of the questionnaire.

          Finally, the researcher observed the non-cooperative attitude of some workers of the company to make information available for her.

1.9     DEFINITION OF TERMS

          For the purpose of this work, definitions of some variable terms are defined as follows:

1.       INVENTORY: This is defined as the stock of the product a company is manufacturing for sale and the components that make up the products (Adibe, 1995 and Aguolu, 1997).

2.       PROFITABILITY: This is defined as the tendency to make profits (Koholer, 1995). It means in general terms for the excess of revenue, proceeds or selling price owners, related cost, and pecuniary benefit arising from profession, or from one or more individual’s transactions of any person.   

3.       MANUFACTURING FIRMS: They are the companies concerned with the production of goods and services made available to consumers with raw materials as their primary inputs.

4.       INVENTORY MANAGEMENT: This refers to all the activities involved in development and managing the inventory levels of raw materials, semi-finished materials (work-in-progress) and finished goods so that adequate supplies are available and the cost of over or under stocks are also low (Chiktriki and Revnidannalt, 2010).

5.       MANAGEMENT: This is defined as a process (both social and technical that utilizes resources and changes human behaviour in the desired direction in order to produce contributions accomplishing the organization obj


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